Renting out home? (Minneapolis: renters, insurance, mortgage)

[MSMCGirl]

I'm thinking about renting out my town house (in the northwest metro) so that I can buy a home closer to work (downtown Minneapolis). I had considered just selling low and then buying low but several people have recommended that I should rather rent out my home and sell when market improve. Is anyone else currently renting out their home in the metro and have any advise? Or any recommendations for property management companies (which is the route I think I would take)?

Thanks in advance!!

[uptown_urbanist]

We are currently in a rental home (owned by relatives, so it counts as "family homesteading" and has slightly different rules -- they, too, are waiting to sell, and we're in limbo figuring out whether or not we're going to stay here and possibly buy or relocate to Chicago for work) and have looked into buying a house ourselves and renting it out until we have a chance to live in it, so this comes from that perspective. The first thing to do is to check your city's regulations -- in Minneapolis there's a hefty fee to convert a home into a rental property. I believe the fee used to be lower, but was raised when the housing market fell, I believe in part to discourage speculators from coming in and buying up a lot of homes and turning them permanently into rentals. I don't know if other local cities have the same rule, but if so, it's something you'll need to factor in as you run the numbersThere's also the rental license itself, although that's relatively low. You'll also want to figure out market rent of the home; you may find that after you pay the mortgage and the property management company that you'll still actually be losing money, as often the rental price isn't going to match what you pay for the mortgage. It still could be worth it in the long-run, but there are a lot of numbers to crunch and and issues to consider.

[audadvnc]

I rented out my Mpls home for a few years while my family lived in Maryland. The house suffered severely from the occupation; the renters weren't particularly bad, but they did absolutely nothing for upkeep, and when they left there was dog hair that came out of the corners for months.

Unless you intend to go into the landlord business, I'd say don't bother. It's too much trouble to watch the house you own turn into a trashy rental unit.

[golfgal]

We have had a really good experience renting out our old house but we got lucky with renters and have had the same main renters for over 5 years. They have taken pretty good care of the house and let us know when things need fixing. Even with that, it is just one more thing to worry about. It is a nice tax write off for the repairs, taxes, etc. and we generate enough income to cover our mortgage, etc. but, it is just one more thing to worry about. We didn't have to pay any fees to convert it to a rental but it is non-homestead taxed vs homestead which is a higher property tax, but not a huge increase ($200/year I think).

[BillWallace]

Definitely do a financial analysis to decide.

When deciding whether to rent you need to figure out the market rent you can receive (use Craigslist) and then subtract out taxes, your mortgage, insurance (extra for rental liability), upkeep (at least $1k/year), accounting, rental loss (if someone doesn't pay or it's vacant for a month while finding new tenant), legal (in case of eviction) and property management (usually 1 mo/rent per year). You can always self manage it and save that part. Most people will be looking at a good sized negative cash flow per month. You can then calculate what that leaves you for a new home.

Then figure out the alternative of selling now with the loss associated with selling in today's depressed market and buying new.

I just bought 2 rental properties in the last month and signed my first tenant last night so it's certainly something you can learn to do yourself. Feel free to send me a direct message if you decide not to use a property management company and need tips on tenant screening, application processes and getting a good lease. Getting a good tenant is the #1 factor in having a good rental experience.

[MSMCGirl]

Thanks for all the replies! Greatly appreciated and VERY helpful! Looks like I have a lot of research and number crunching to do! Might list my house first and see what response I get and then if necessary, consider renting out.

[HarborEastGuy]

Life is short and you don't need the aggravation of 3AM calls to fix something, renters who lose their job and decide they
shouldn't have to pay rent until they find new work, or renters who let the place go down hill. I say sell it at a loss and
buy something in the area you want at the seller's loss. This way you really don't lose any money. Life is just too damn
short for unnecessary hassles in life..